Integrated Report 2019 - SATO HOLDINGS CORPORATION - SATO Global

Page created by Wade Garcia
 
CONTINUE READING
Integrated Report 2019 - SATO HOLDINGS CORPORATION - SATO Global
Securities code: 6287

                            Integrated Report 2019

SATO HOLDINGS CORPORATION
    www.satoworldwide.com
Integrated Report 2019 - SATO HOLDINGS CORPORATION - SATO Global
Contents                                                                                                                                                 SATO Values

SATO Values                                                        2

Instilling corporate values in employees                           3                                                                                     Corporate
Teiho                                                              4                                                                                     motto

Our journey of tackling changes and challenges                     5                                                                                                 Akunaki sozo — Ceaseless Creativity
What SATO aims to be                                               7
                                                                                                                                           page     11
SATO by the numbers                                                9
                                                                                                                                                         Mission     Our mission is to create new value for our customers through products and services of superior quality,
From the President and CEO                                        11
                                                                                                                                                                     and to contribute towards a better and more sustainable world.
Sustainability framework                                          17

Our business model                                                25                                                                                     Vision      We aim to be the leader and most trusted company in the auto-ID solutions industry worldwide,
                                                                                                                                                                     exceeding customer expectations in an ever-changing world.
Our wide coverage of markets, industries and applications         27

Our products and services                                         29
                                                                                                                                                         Credo       • We inspire changes, new ideas, and the courage of promoting customer-centric innovation
Actions for sustainable business growth                           31                                                                                                   in the spirit of Ceaseless Creativity.
                                                                                                                                          page    17                 • We seek to be true professionals by constantly striving to exceed the expectations of our customers.
Latest in solutions                                               39
                                                                                                                                                                     • We see things as they are, and do the right thing right away.
Latest in alliances                                               40
                                                                                                                                                                     • We show respect for all individuals, extend trust to each other,
Taking new challenges                                             41                                                                                                   and work together as one cohesive team.
From the CFO                                                      43                                                                                                 • We enable a vibrant and open-minded workplace, eliminating the formalities
                                                                                                                                                                       that cause “Big Company Disease.”
Corporate governance                                              47
                                                                                                                                                                     • We share the returns from our business with our four stakeholders: shareholders, employees,
From our external directors                                       53                                                                                                   society and the company.
Management team                                                   55
                                                                                                                                          page    31
Financial review for FY 2018                                      57

Financial summary                                                 59

Stock information                                                 61

Corporate data                                                    62

Basics of auto-ID technology                                      63

SATO terminologies                                                64

                                                                                                                                          page    47

  Editorial concept
  This report is the record of the tangible and intangible aspects of the SATO Group’s medium- to long-term value-creation story through its core
  business of auto-ID solutions.

                                                                                                                                                                                                                                                                               2
Integrated Report 2019 - SATO HOLDINGS CORPORATION - SATO Global
Instilling corporate values in employees                                                                                              Teiho

                                                                                                                                          Where change always began for over 40 years
    Spreading SATO Values (our corporate philosophy)

    We are undertaking activities to impart our Credo to SATO               One of the biggest such activities is the SATO Values
    Group employees around the world for them to put its                    Workshop held at countries/regions where our group
    principles into daily practice. We believe these efforts help           companies operate. Local leaders work off of the training
    us drive “Change and Action” that we need in business,                  program that we develop every year to facilitate workshops
    deliver our Vision, and take us closer to fulfilling our Mission        in their local language. Workshop materials are translated
                                                                                                                                          Founder Yo Sato started the Teiho reporting system in                                      better and on how to put them into action, drawing from
    to “contribute towards a better and more sustainable world.”            into 15 languages, while the SATO Values pocket leaflets
                                                                                                                                          1976 from the belief that management alone cannot run                                      customer feedback or market information they obtain
        Over 50 promotional leaders chosen from group                       we distribute for employees to carry around with their
                                                                                                                                          the company and keep it growing; every employee should                                     from their field of operations. These Teiho reports that
    companies worldwide serve as “ambassadors” to spread                    employee ID cards are printed in English on one side and
                                                                                                                                          pitch in for the company to contribute to the global society.                              are submitted daily to top management serve as
    the spirit to their local colleagues through various activities.        local language on the other.                                  Teiho is a system for employees to submit original ideas,                                  our driving force for making important business decisions
                                                                                                                                          innovations and proposals aimed to make the company                                        and changes.
                                                        Scenes from a SATO Values Workshop

                                                                                                                                                                          Comments on report and sends             Top                                    Growing database
                                                                                                                                                                            out instructions for relevant
                                                                                                                                                                         departments/members to follow up       management                                     of over

                                                                                                                                                  Requests improvement
                                                                                                                                                                                                                                                        8 million entries

                                                                                                                                                                                                                                          Take action
                                                                                                                                                                                                                                                                 Ideas
                                                                                                                                                                                                     Report on original ideas,
    Credo Awards World Cup                                                                                                                                                Employees
                                                                                                                                                                                               innovations and proposals aimed to
                                                                                                                                                                                                  make the company better and
                                                                                                                                                                                                                                                             Used in daily work
                                                                                                                                                                                                  on how to put them into action
    We hold an annual event in which we recognize individual                where they would present their episodes on the Credo Awards
    employee behavior over the past year that lived up to                   World Cup stage, to receive votes for the Best of the Best.
    our Credo.                                                                  We are seeing more employees enter the contest every
       Each group company collects entries from its                         year, with more entries involving highly Credo-compliant
    employees for nomination to the global competition, in                  actions than ever. After the World Cup, finalists return to
    which group company heads and values promotion                          their workplaces brimming with confidence, motivation and
                                                                                                                                                                                                                                            Our means of
    leaders vote to shortlist the finalists.
       Finalists are invited to the annual SATO Group Summit,
                                                                            growth, bringing renewed energy to their teams.
                                                                                                                                                                                                                                      participatory management
                                                                                                                                          Submission form
                                                             Credo Awards World Cup

                                                                                                                                                                                     Top management comments/sends instructions
                                                                                                                                                                                     on ideas submitted

                                                                                                                                                                           Web

                                                                                                                                                                         For more about Teiho, see:
                                                                                                                                                                         http://www.satoworldwide.com/sato-group/teiho-system.aspx

3                                                                                                                                                                                                                                                                                                4
Integrated Report 2019 - SATO HOLDINGS CORPORATION - SATO Global
Our journey of tackling changes and challenges

      The SATO Group had always wanted to “do something” to
      make work easier for workers at factories, warehouses and
                                                                                       manufacturing and selling products. As SATO turns 80
                                                                                       next year, its business will keep evolving over time,
                                                                                                                                                                           Our challenge continues
      stores, which led to the creation of its bamboo processors,                      but the founding spirit to support people working at the
      hand labelers and barcode printers. Today, it focuses more
      on solutions while continuing the business of creating,
                                                                                       very site of operations will always remain an integral part
                                                                                       of its culture.                                                                                              into the future
        1940                                                          1964                                                                                        1990s

        SATO founded                                                  Started    production of labels                                                             Established      DCS & Labeling
        Started manufacturing and sales of                            Began hand labeler labels production                                                        for solving customers’ problems on site
        bamboo processors.                                            in-house to ensure stable printing and
                                                                                                                                                                  SATO shifted its focus to selling solutions to help                                                               Global
                                                                      application quality. Since then its production
                                                                      capabilities have evolved to cater to diverse
                                                                                                                                                                  customers in diverse industries collect various
                                                                                                                                                                  data on their operations for subsequent processing
                                                                                                                                                                                                                                                                                   solutions
                                                                      needs (e.g., heat-resistant labels for steel,
                                                                                                                                                                  in their core IT systems. It named the business                                                                  provider
                                                                      environmentally friendly options).
                                                                                                                                                                  model DCS (Data Collection Systems) & Labeling.

                                                                        Past                                                                                                   Present                                                                                                 Future

                      1962                                                                      1981                                                              2010s
                                                                                                                                                                                                                                                                                 Sustainable
                      Invented the world’s first                                                                thermal
                                                                                                Developed the world’s first                                       Enhanced the business model to
                                                                                                                                                                                                                                                                                   world
                      hand labeler                                                              transfer barcode printer                                          DCS & Labeling +One
                      Helped retail stores cut down on the time and                              Met the growing needs for accuracy and                           to solve problems faced by business leaders
                      the trouble of applying price tags. This was                               labor savings as use of point of sale (POS)
                                                                                                                                                                  In 2000s, enterprises started to face common
                      the inception of tagging — SATO’s important                                systems spread in supermarkets.
                                                                                                                                                                  pain points such as productivity and labor
                      business domain and foundation.                                            SATO went on to develop various
                                                                                                                                                                  shortages. To better address these problems
                                                                                                 printers that would serve not just retail                                                                                                               2014–15
                                                                                                                                                                  and create value for our customers, SATO
                                                                                                 but a wide range of industries                                                                                                                        Launched IoT-ready CLNX series printers
                                                                                                                                                                  started partnering with other companies to
                                                                                                 including logistics, manufacturing                                                                                                                    Started offering SOS (SATO Online Services),
                                                                                                                                                                  combine various auto ID technologies, laying
                                                                                                 and health care.                                                                                                                                      an IoT-enabled maintenance system
                                                                                                                                                                  foundation for our solutions business today.

                                                                                                                                                                                                                                                           2017

                                                                                                                                                                                                                                                       Fully started in-house production of original
                                                                                                                                                                                                                                                       RFID consumables
                                                                                                                                                                                                                                                       Launched IDP (Inline Digital Printing) business
    Evolving the business to meet changing needs

    SATO
                                                      Products that meet the needs of the era                                                                     DCS & Labeling                                                  More advanced auto-ID solutions
    business
                                                         Time-proven strengths of tagging on site                                                                 Uncompromising commitment to product and value creation

    Changes in
                       Rise of supermarkets                                      Spread of barcodes                                      Complex issues at   Universal pain points in management                        Diverse consumer preferences              Growth of IoT
    society                                                                                                                               customer sites

5                                                                                                                                                                                                                                                                                                        6
Integrated Report 2019 - SATO HOLDINGS CORPORATION - SATO Global
What SATO aims to be

    The world today turns to IoT and AI to seek ways to solve societal challenges arising from more
                                                                                                                                                                                                                       Sustainable
    diverse supply chains, greater demand for safety, and mounting demographic concerns.                                                                                                                                 world
    By using this as an opportunity to expand our business worldwide on “selling the solution” to
    support information tagging for a wide range of markets and industries, we aim to grow ourselves
    into a global solutions provider that contributes to a better and more sustainable world.

                                                                       FY 2019–21 SATO Group
                                                                  Medium-term Objectives & Strategies
                                                                    Concentrate resources on our auto-ID solutions business
                                                                                                                                                                                    Global solutions
                                                 Growth
                                                                    (DCS & Labeling +One), and establish sustainable growth
                                                                    and stable profits                                                                                                 provider
                                                                     Grow and evolve the auto-ID solutions business
                                                 strategy            Strengthen and expand business through global alliances
                                                                     Develop B2B2C business to create new consumer value
                                                                     (Commercialize IDP solutions and new RFID technologies)

                                                                              Selling the solution, not the product
     The world around us                                                      (koto-uri)

      Societal  Technological
     challenges innovations
                                                                        Retail                          Manufacturing

                       IoT

     More diverse                                                                                                                                                                     FY 2025 targets
     supply chains
                                                                                                                                                                                        (consolidated)
                                                                                     Tag
                                                                                 information
                        AI

                                                                                                                                Food &
                                                                                                                                                                                   Sales:¥             200 billion
                                                    Health care
    Greater demand
                                                                                 to things & people                            beverage                                            Operating income:    ¥24 billion
       for safety               Opportunities
                       5G
                                                                                                                                                                                        Relevant
                                                                                                                                                                                          SDGs

       Shift in
    demographics
                     Sensors      Genbaryoku
                                           See Page 64.
                                                                       Public                             Logistics                              A global solutions provider that
    Climate change
                     Robotics
                                                                                                                                                 contributes towards a better and
                                                                        Auto-ID solutions business
                                                                      Creating “unbeatable offerings”
                                                                                                                                                      more sustainable world
                                                                   (best-in-class solutions, products, services, devices)

                                                                                                       Sustainability                     — Value creation for customer & SATO —

                                                                                                       Corporate governance               — Focus on overseas subsidiaries —

7                                                                                                                                                                                                                               8
Integrated Report 2019 - SATO HOLDINGS CORPORATION - SATO Global
SATO by the numbers

                                                                                                                                                                                                                Market share for variable                                              Market share for
    Performance highlights                                                                                                                                                                                      information labels                                                     barcode label printers                                              In business for

    The SATO Group closed FY 2018 with sales at ¥116.2 billion (up 2.5% year on year),
    operating income at ¥7.7 billion (up 22.9%) and profit attributable to owners of parent at
    ¥3.8 billion (down 7.4%). Both our Japan and Overseas businesses raised their sales and
                                                                                                                                                                                                                No.  1
                                                                                                                                                                                                                 worldwide
                                                                                                                                                                                                                                                                                       No.  2
                                                                                                                                                                                                                                                                                        worldwide
                                                                                                                                                                                                                                                                                                                                                           80 years
                                                                                                                                                                                                                                                                                                                                                           (as at FY 2020)

    OI performances from last year, pushing respective figures to record their highest ever in                                                                                                                  * SATO estimate                                                        * Source: Chunichisha. “Whole Picture of
                                                                                                                                                                                                                                                                                         the Printer Market Report 2019.”
    our core auto-ID solutions segment and on a consolidated basis.
                                                                                             Financial                                                                                                                                                                                            Non-financial

    Sales & operating income                                                                        Profit attributable to owners of parent & ROE                                                     Per capita productivity                                                                                    Turnover of new graduate hires within 3 years &
        Sales                                                                                             ROE                                 FY 2017 saw extraordinary income owing to
                                                                                                                                                                                                                                                                                                                 average length of service (Japan only)

    116,179million                                                                                  6.9%
                                                Sales continued to grow, while OI for Japan                                                   sale of fixed assets, while FY 2018 reflected
                                                                                                                                                                                                                                   Greater efficiency in sales and operations heightened                                                   Early-career trainings continue to lower turnover, while
                                                and Overseas improved by 20% in FY 2018.                                                      impairment loss at an overseas subsidiary.                 POINT                                                                                                         POINT
                                                                                                                                                                                                                                   profitability, raising per capita productivity as well.                                                 employees, on average, continue to serve the company longer,
    (Millions of JPY)                                                                               (Millions of JPY)                                                                          (%)                                                                                                                                        owing to enhanced initiatives to improve work-life balance.
                                                             113,383    116,179
     120,000                                                                            12,000       5,000                                                                                     10     (Millions of JPY)                                                                                          (%)                                                                         (No. of years)
                                 105,504      106,302                                                                                                                                                                                                                                                                                                       14.6          14.6       14.9
                        99,831                                                                                          3,763                              4,074                                                                                                                                                                                 13.8
                                                                                                                                                                        3,773                          2.00                                                                     1.93                              30                13.4                                                                15
                                                                                                                     7.6           3,687
                                                                                                     4,000                                                                                      8
      90,000                                                                 7,679       9,000                                                  3,221             7.6             6.9                                                                               1.84
                            7,444                                                                                                7.1                                                                                                                                                                                                21.8
                                                                                                                                                    6.2                                                                                    1.81                                                                                                  19.6
                                        6,455        6,104        6,249                              3,000                                                                                      6
                                                                                                                                                                                                       1.80                                                                                                       20                                                                                    10
      60,000                                                                             6,000                                                                                                                              1.69
                                                                                                                                                                                                                                                       1.75                                                                                                               13.3
                                                                                                     2,000                                                                                      4
                                                                                                                                                                                                                                                                                                                                                            13.2
      30,000                                                                             3,000                                                                                                                                                                                                                                                                                       8.0
                                                                                                     1,000                                                                                      2      1.60                                                                                                        10                                                                                    5

             0                                                                               0              0                                                                                   0
                 (FY)     2014       2015         2016          2017      2018                                   (FY)    2014       2015        2016        2017           2018
                                                                                                                                                                                                            0                                                                                                       0                                                                                    0
                                            Sales (left axis)      Operating income (right axis)                     Profit attributable to owners of parent (left axis)           ROE (right axis)                 (FY)    2014           2015        2016        2017         2018                                         (FY)   2014        2015        2016          2017       2018

                                                                                                                                                                                                      Per capita productivity = Operating income plus goodwill amortization and ERP system                                                      Turnover of new graduate hires within 3 years (left axis)
    Free cash flow                                                                                  EBITDA margin                                                                                     depreciation per working employee                                                                                                                           Average length of service (right axis)
                                                We continue to increase free cash flow
                                                after investments on an ERP system                                                            Earnings before interest, tax, depreciation and         Board size & ratio of external directors                                                                   Patent utilization rate (Japan)
    4,152million                                                                                    11.4%
                                                (now in successful operation) had impacted                                                    amortization rose to its highest ever, with its
                                                FY 2015 figures.                                                                              margin growing a full percentage point.                                              We have increased the ratio of external directors on our                                                Our conscious efforts to obtain patents that create customer
                                                                                                                                                                                                         POINT                     board since first adding in 1999. External directors now                            POINT               value have kept our utilization rate growing to exceed the
    (Millions of JPY)                                                                               (%)
                                                                                                                                                                                                                                   account for the majority of our board, reflecting the                                                   industry’s average since FY 2017.
                                                                                                                         11.1                                              11.4
       6,000                                                                                         12                                11.0     10.6                                                                               growing need for board independence.
                                                                                                                                                            10.4
                                                                          4,152                                                                                                                       (No. of directors)                                                                             (%)        (%)
       4,000             2,983                                                                                                                                                                         15                   14(2)                                                                   100            100
                                                                2,679                                 9
                                                  2,052
       2,000                                                                                                                                                                                           12                                              11(5)       11(6)                             80             80                                                               72.1
                                                                                                                                                                                                                                          10(4)                                                                                                  65.2                      67.1
                                    -3,504                                                            6                                                                                                                                                                           63                                                59.1                       56.1
            0                                                                                                                                                                                           9                                                                       (5)
                                                                                                                                                                                                                                                                                8                    60             60
                                                                                                                                                                                                                                                                         55
                                                                                                                                                                                                                                                                                                                                                                           54.1
                                                                                                      3                                                                                                                                                       45                                                                                 35.9
      -2,000                                                                                                                                                                                            6                                         40                                                 40             40                                      44.0

                                                                                                                                                                                                                                                                                                                                    28.0
      -4,000                                                                                          0                                                                                                 3                         14                                                                 20             20
                 (FY)     2014       2015         2016          2017      2018                                   (FY)    2014       2015        2016        2017           2018

                                                                                                                                                                                                        0                                                                                              0                0
                                                                                                                                                                                                                    (FY)    2002          2004         2010        2016         2019                                         (FY)   2014        2015        2016          2017       2018
    Capital expenditures & depreciation                                                             Dividends per share
                                                                                                                                                                                                                                       Internal directors (left axis)     External directors (left axis)                    SATO’s patent utilization rate*1          Electrical machinery manufacturers*2
                                                Capital expenditures took an expected drop
      Capital expenditures                                                                                                                                                                                                                                      Ratio of external directors (right axis)         *1 Based on date registered       *2 Utilization rate of (owned) patent rights
                                                from FY 2017 that saw surge in spendings
                                                                                                                                                                                                                                                         Figures in parentheses: No. of external directors       		 Source: In-house records       		Source: Japan Patent Office Annual Reports 2015–2019

    4,801million                                                                                    ¥70
                                                on production enhancement and plant                                                           We continue to increase dividend payout at
                                                relocation. Depreciation increased slightly.                                                  steady increments.
    (Millions of JPY)                                                                               (JPY)

      10,000                                                 9,044                                   80
                                                                                                                                                             65
                                                                                                                                                                           70                               The 2019 Intellectual Property Achievement Awards
                        7,372                                                                                                                    60
       8,000                                                                                                                           55                                                                   Since its early days, SATO has always understood the importance of patents,
                                    6,717                                                            60
                                                5,723                                                                    45                                                                                 with which it has protected numerous aspects of its proprietary technologies.
       6,000                                                           4,801
                                                                  4,307     4,489                                                                                                                           Conscious efforts to obtain patents that lead to customer value have improved
                                        3,941        3,996                                           40
       4,000                                                                                                                                                                                                our implementation rate by 30 percent over four years, and won us the
                            2,500                                                                                                                                                                           Commissioner of the Japan Patent Office Award from the Japan Patent Office
                                                                                                     20
        2,000                                                                                                                                                                                               (Japan Ministry of Economy, Trade and Industry) in FY 2019 as a recognition of
                                                                                                                                                                                                            our contributions toward effective utilization and development of the nation’s
             0                                                                                        0                                                                                                     IP rights system.
                 (FY)     2014       2015         2016          2017      2018                                   (FY)    2014       2015        2016        2017           2018

                                                         Capital expenditures      Depreciation

9                                                                                                                                                                                                                                                                                                                                                                                                              10
Integrated Report 2019 - SATO HOLDINGS CORPORATION - SATO Global
From the President and CEO

                                                                                                    Highest-ever sales                              We recorded highest-ever consolidated figures for FY 2018 at sales of ¥116.2

                                                                                                    and OI accelerates our                          billion and operating income of ¥7.7 billion.

                                                                                                    commitment to                                          The strong performance proves that our strategic efforts in Japan since
                                                                                                                                                    FY 2016 to “sell the solution, not the product” (koto-uri) for each industry are
                                                                                                    “sell the solution”
                                                                                                                                                    succeeding. This method of offering ideal combinations of printers and
                                                                                                                                                    matching products with real, measurable benefits for sites of operation is
                                                                                                                                                    a business that brings high value-add to our customers while bolstering our
                                                                                                                                                    own profitability as well.
                                                                                                                                                           Outside Japan, sales have largely grown in our base business of printers
                                                                                                                                                    and consumables, but time taken in the Americas and Europe to shift their
                                                                                                                                                    strategies had caused us to miss our initial targets. We also admit that we’re
                                                                                                                                                    still not generating synergies we initially intended with our global subsidiaries
                                                                                                                                                    acquired through M&As. Our global companies would obviously start realizing
                                                                                                                                                    their potential once they have built their business around solutions, so I will be
                                                                                                                                                    pushing this shift to koto-uri as a core strategy to develop our global sector into
                                                                                                                                                    a major pillar of the group’s business.
                                                                                                                                                           R&D for our IDP business that we aim to commercialize as a new
                                                                                                                                                    technology in FY 2019 is largely going as planned and we have started
                                                                                                                                                    consumer trials. We’re excited about the enormous possibility this B2B2C
     We aim to step up growth to become a global                                                                                                    business offers retailers and brands for greater engagement with consumers.

     solutions provider that contributes towards
                                                                                                    FY 2018 performance (Sales and OI figures are compound annual growth rates)
     a better and more sustainable world                                                            Consolidated*                                   Overseas                                          Japan

                                                                                                    Against FY 2016                                 Against FY 2016                                   Against FY 2016

                                                                          Ryutaro Kotaki            Sales                             +4.5%        Sales                              +5.5%         Sales                              +3.8%
                                                                          President and CEO
                                                                                                    Operating income                  +12.2%       Operating income                  +16.5%         Operating income                  +23.6%
                                                                                                    Operating margin             5.7 % → 6.6%      Operating margin             4.2 % → 5.2%        Operating margin            6.8 % → 9.6%
                                                                                                    (Millions of JPY)                               (Millions of JPY)                                 (Millions of JPY)
                                                      Management policy                                                                116,179
                                                                                                                           113,383                                          42,585     43,316                                             72,435
                                                                                                           106,302                                                                                                            70,482
                                        Perfect the basics, collaborate,                                                                                    38,926                                            67,283
                                                                                                                                                                                                                                                6,982

                                             take new challenges                                                                                                                                                                     5,831
                                                                                                                                            7,679
                                                                                                                                                                                                                          4,571
                                                       Growth strategy                                                  6,104
                                                                                                                                   6,249                                                      2,239
                                                                                                                                                                                   1,865
                              Concentrate resources on our auto-ID solutions business (DCS &                                                                            1,650
                              Labeling +One), and establish sustainable growth and stable profits
                              1. Grow and evolve the auto-ID solutions business
                              2. Strengthen and expand business through global alliances            (FY)       2016             2017    2018        (FY)       2016             2017       2018       (FY)       2016             2017       2018
                              3. Develop B2B2C business to create new consumer value                   Sales        Operating income                   Sales        Operating income                     Sales        Operating income
                                 (Commercialize IDP solutions and new RFID technologies)            * Includes the IDP business

11                                                                                                                                                                                                                                                      12
Integrated Report 2019 - SATO HOLDINGS CORPORATION - SATO Global
From the President and CEO

                                                                                                                                                            Competitive advantage                     We offer the best auto-ID solutions for fields of operation in a variety of industries,
                                                                                                                                                                                                      working off of our know-how in tagging information to things and people.
                                                                                                                                                                                                      Our strength in this business is none other than what we call genbaryoku.
                                                                               Riding the winds of change                                                                                             It consists of three elements: (1) The ability to integrate printers, consumables,

                                                                               to be where we hope to be                                                                                              technologies and services into optimal solutions based on our experience
                                                                                                                                                                                                      hearing out customers’ pain points directly at their site of operations;
                                                                                                                                                                                                      (2) The ability to cover a wide span of markets, industries and applications
                                                                                                                                                                                                      with our solutions, powered by our accumulated knowledge of customer fields;
                                                                                                                                                                                                      (3) The ability to offer maintenance services conscientiously after installation
                                                                                                                                                                                                      to establish deep, lasting relationships with customers.
                                                                                                                                                                                                           This genbaryoku — literally “on-site competency” — together with our R&D
                                                                                                                                                                                                      prowess to create unbeatable products and services shapes our solutions
                                                                                                                                                                                                      business, which, with our collaborative partnerships with system integrators,
     What we aim to be                          The world today turns to IoT and AI to seek ways to solve societal challenges                                                                         prove to be the ultimate differentiator and our competitive advantage.
                                                arising from more diverse supply chains, greater demand for safety, and
                                                mounting demographic concerns. This trend is an enormous opportunity for us
                                                to grow our business that provides auto-ID solutions to a wide range of fields                              Differentiation
                                                including retail, manufacturing, food & beverage, logistics and health care.
                                                It’s with this tailwind and our strategic positioning in “tagging* on site” that we
                                                                                                                                                            SATO as a “customer-centric”
                                                would expand our business worldwide on “selling the solution” to become a                                   solutions provider
                                                global solutions provider that contributes to a better and more sustainable
                                                world while also priding ourselves as a quality manufacturer.
                                                * The physical process of attaching identifier data to things and people. SATO is committed to tagging a
                                                                                                                                                              See from
                                                                                                                                                                                                                            Major providers of ERP,
                                                                                                                                                                                                                                                                             System                Sees from

                                                  diverse range of objects handled by different businesses, drawing upon a wealth of practical, technical
                                                                                                                                                              top down
                                                                                                                                                                                 System integrators*                           WMS, MES, etc.               Compe-
                                                                                                                                                                                                                                                                           integrator-             top down

                                                  know-how in auto-ID solutions backed by genbaryoku.                                                                                                                                                        tition
                                                                                                                                                                                                                                                                             function

                                                                                                                                                                                                                           Win-win          Partnership
     Our aim

     A global solutions provider that contributes towards
     a better and more sustainable world                                                                                                                                                             solution service

                                                                                                                                                                                                                                                                         Competitor’s
                                                                                                                                                                                   Selling the solution, not the product (koto-uri)
       The world around us                                                                                                                                                                                                                                  Compe-
                                                                                                                                                                                                                                                                          solution service
                                                                                            Manufac-
                                                                   Retail                                                                                                                                                                                    tition
                                                                                             turing
        Societal challenges                                                                                                                 Global
                                                                                                                                           solutions                                                 Tag information
       More diverse supply chains,                                                                                                                                                                    to things & people
       greater demand for safety                                                                                                           provider
               ...and more
                                                        Health         Tag information                    Food &
                                                         care               to things & people           beverage
                                                                                                                                                                              Unbeatable offerings               Exquisite products, services,
            Technological                                                                                                                                                                                            devices & solutions
             innovations             Opportunities                                                                  Growth
                                                                                                                                          Sustainable                                                                                                                           Selling
               IoT, AI, 5G,                                                                                                                                                                                                                                                   the product
                                                                                                                                            world
            sensors, robotics                                                                                                                                                     Genbaryoku                    • Integration • Field coverage
                                                                   Public                    Logistics                                                                                                                  • Maintenance                                        Channel sales
                                                                                                                                                             Sees from
                                                                                                                                                                                                                                                                         (via business partners)
                                                                                                                                                             bottom up

        See Pages 7-8.                                                                                                                                                                                   * Companies that provide comprehensive services on consulting, designing, developing and implementing
                                                                                                                                                                                                           IT systems and selecting hardware that comprises them.

13                                                                                                                                                                                                                                                                                                               14
Integrated Report 2019 - SATO HOLDINGS CORPORATION - SATO Global
From the President and CEO

     Business is built on talent   Business can expand only with good talent, which is why we have been working
                                   to foster talent who can put our Credo into action. We instill our corporate values
                                   in employees worldwide with the help of promotional leaders selected from
                                                                                                                         More stakeholder dialogue,
                                   group companies around the world. It’s this groundwork that allows us to focus
                                   on our strategy to become a global provider of solutions that perfectly match         more engagement
                                   operational issues of our customers and push koto-uri forward.
                                      This focus on koto-uri specifically starts from reinforcing our service support
                                   teams that have actual contact with the customers. Sales teams would then be
                                   able to collaborate with them to access information on customers and their
                                   needs to derive more appealing solutions. And project leaders versed in
                                   a particular industry would further the collaboration by sharing with global
                                   employees the latest case examples of new needs and solutions that have
                                   developed from market trends and law revisions.
                                      Positions for such talents needed outside Japan will be filled by hiring                           To have our stakeholders better understand these and other unique strengths
                                   mid-career professionals with proven track records, as well as by sending                             of SATO, I will seek to create more opportunities for dialogue and engagement
                                   specialists with industry expertise to countries in need to transfer the know-how.                    with you going forward.
                                   We will also be hiring more engineers and staff at the local level.                                      In closing, I must also add that, after formulating our basic policy on actions
                                                                                                                                         for sustainability last fiscal, we went on to identify material issues in our business
     Governance, the foundation    Effective June 2019, we have downsized our board of directors from 11 members                         management which may impact our value propositions to customers or

     for growth                    to eight. This change allows us to make decisions faster, while the higher                            environmental conservation. We have started applying such materiality priorities
                                   proportion of external directors brings more objective insight into decisions and                     this fiscal, while aligning our sustainability efforts with the ten principles of
                                   ensures more transparent governance.                                                                  the United Nations Global Compact.
                                      As we believe that external directors are key to heightening effectiveness                            Lastly, on dividend. Total dividend per share for FY 2018 was ¥70, up ¥5 from
                                   of the board, we are making efforts to enhance the support we provide them.                           the previous fiscal. As we anticipate investment in our growth-potent global
                                   An example is holding pre-working sessions prior to board meetings for                                business this fiscal, we plan to keep the dividend increase modest for FY 2019
                                   executive officers and business segment leaders to update external directors                          at ¥3 for a total ¥73 per share for the entire fiscal.
                                   on current business standings and answer their questions in advance. We also                             On behalf of the entire group, I ask for your unchanging support as
                                   have a Business Risk Committee reporting directly to the board to discuss                             SATO continues its quest for global, sustainable growth through its auto-ID
                                   strategically important matters such as new investments and M&As, and to                              solutions business.
                                   submit advice to the board so that external directors can make management
                                   decisions quickly and appropriately together with their board counterparts.

     Greater engagement            I feel that I have yet to fully convey the true essence of SATO’s unique business
                                   model to our stakeholders. The value we provide our customers — e.g., better                                                                               Ryutaro Kotaki
                                   productivity — is largely universal, so our business is highly resilient to risks                                                                          President and CEO
                                   stemming from surrounding changes. In fact, there’s a global variety of
                                   opportunities out there for us because our auto-ID solutions business is
                                   capable of adapting to megatrends around us to address the deeper, intricate
                                   needs of different markets, industries and applications. We have seized these
                                   opportunities in Japan to develop a diverse portfolio of profitable solutions;
                                   it’s now time for us to do the same beyond Japan, to expand our portfolio and
                                   heighten our business resilience even further.

15                                                                                                                                                                                                                                16
Integrated Report 2019 - SATO HOLDINGS CORPORATION - SATO Global
Sustainability framework

     The SATO Group’s Mission is to “contribute towards a better and more sustainable world,”
     which is why sustainability is inseparable from our business. In line with SDGs (Sustainable
     Development Goals) and other global agendas of growing interest and through materiality                                                                            Materiality map
                                                                                                                                                                                                                                                     Value to be delivered to customers   Groundworks to value creation   Environmental responsibility
     assessment, we have taken actions on our basic policy for sustainability, which was set forth in
     2018 to clarify sustainability principles that matter most to our business and stakeholders.                                                                                                                                     Greenhouse gas emissions

                                                                                                                                                                              Very high
                                                                                                                                                                                                       Efficient use of resources                                                                  Productivity improvement
     Basic policy for sustainability
                                                                                                                                                                                                       Harmony with nature                 Supply chain management                                         Peace of mind
                                                          Sustainability goes hand in hand with customer value creation and corporate value enhancement,
        1       Create value                              which we consider the fundamentals of company management.                                                                                                                                                                                          Waste reduction

                                                                                                                                                                          Importance to stakeholders
                                                                                                                                                                                                                                                                                          Safety & quality assurance
        2       Keep to our business                      We achieve sustainability through our business.

                                                                                                                                                                                                                                         Stakeholder engagement                                   Product sustainability
        3       Make it duplicable                        Our sustainability initiatives shall be duplicable over time or across the Group.
                                                                                                                                                                                                       Harmony with society                       Diversity & inclusion                                      Talent development

        4       Align with the actual situation           The actual situation of our business operations shall reflect our ideas for sustainability.                                                     Human rights & labor practices

                                                                                                                                                                                                              Health & safety at work                                     Workstyle innovations
        5       Enhance disclosure                        We shall disclose sustainability-related information to fulfill our accountability to stakeholders.

                                                                                                                                                                              High                                                       Influence on SATO’s business                                                                Very high

     Our concept of materiality                                                                                                                                                                                                     Corporate governance, risk management

     We identify our materiality agendas by their relevance to                         and supply chain management, and C. Environmental
     three areas: A. Value to be delivered to customers, as                            responsibility. These areas stand on the basis of corporate
     associated to our core business of auto-ID solutions, B.                          governance and risk management.                                                  Our process to identifying materiality
     Groundworks to value creation, e.g., talent development
                                                                                                                                                                        We started by forming a sustainability committee involving                           resource development functions. After studying principles of
                                                                                                                                                                        departments that manage the environmental, social and                                the United Nations Global Compact, international guidelines,
      Materiality overview                                                                                                                                              governance aspects of our business, as well as departments                           and a plethora of case studies, we were able to identify
                                                                                                                                                                        that are involved in investor relations, public relations or other                   important issues that could affect our stakeholders and
                  A   What we aim to offer through our core business to help customers cope with societal challenges
                                                                                                                                                                        forms of engagement with our stakeholders. This committee                            business to plot them into a materiality map. Going forward,
                  B   What we undertake internally/externally to enable the continuous creation of customer value
                                                                                                                                                                        took charge of holding multiple discussions and workshops                            we will work to review these material topics continuously by
                  C   What we do to protect the global environment where we live and do business                                                                        attended by the management team and members from                                     reaching out to a wide spectrum of stakeholders.
                  D   Underlying foundation                                                                                                                             our sales, R&D, production, product planning, and human

            A   Value to be delivered to customers                      B   Groundworks to value creation                              C     nvironmental
                                                                                                                                            E
                                                                                                                                            responsibility
                Waste reduction        Productivity improvement         Talent development                Diversity & inclusion

                Peace of mind        Product sustainability             Stakeholder engagement          Supply chain management          Greenhouse gas emissions

                       Safety & quality assurance                      Workstyle innovations           Harmony with society                Efficient use of resources

                                                                      Human rights & labor practices   Health & safety at work          Harmony with nature

                                              D   Corporate governance, risk management
                                                                                                                                                                        One of our sustainability workshops

17                                                                                                                                                                                                                                                                                                                                                       18
Sustainability framework

     Delivering customer value
                                                                                                                                        Relevant SDGs

     Value to be delivered to customers is a key priority
     in our material agendas that is closely linked to our
     core business of customer-centric auto-ID
     solutions. Our lineup of sustainable products and
     services can offer customers benefits that include                                     resources, and enjoying reassurance and
     minimizing environmental impact, saving labor and                                      continuous quality improvements.

                                                                                                                                                         Waste reduction, productivity improvement
     Product sustainability                                                                                                                              and peace of mind

     Taking action to combat climate change and its impacts is                              notably in how we provide labels without release liners or   Our auto-ID solutions allow customers to collect data and       optimizing supply chains, they also aim to improve the quality
     an important agenda for not just SATO but our customers                                use paper materials from FSC® (Forest Stewardship Council)   automate their operations to visualize inventory and reduce     of food & beverage and health care operations to offer peace
     as well. We support customers in reducing their ecological                             certified forests.                                           waste. In addition to streamlining business processes and       of mind to our customers and the consumers they serve.
     footprint through product and material sustainability,

                                                                                                                                                         Safety and quality assurance

                                                                                                                                                         At SATO, safety and quality are matters to consider at          maintenance support service. As SOS offers at-a-glance
                                                                                                                                                         the product/service planning stage as well as in the later      visibility of all connected printers and their status of
                                                                                                                                                         phases of the supply chain (such as production, distribution,   operation/use, customers can use the service to manage
                                                                                   NONSEPA®                                                              retail and maintenance). For example, when we include           their assets with similar ease.
                                                                                   Linerless labels
                                                                                                                                                         ‘ease of maintenance’ in our product idea at the planning           We also monitor the performance of our products and
                                                                                                                                                         stage, we essentially lighten the workload of maintenance       services once they are launched, to investigate root causes
                                                                                                                                                         staff and reduce unnecessary stoppages on site, improving       and make prompt improvements when problems occur to
                                                                                                                     Linerless                           the services we provide to our customers post-sales.            enhance their safety and quality. We will also incorporate
                                                                                                                       label                                 In addition, we pay attention to preventative maintenance   customer feedback by acting on requests and other data
                                                                                                                                                         and quick recovery from errors, as shown by SOS (SATO           collected through surveys.
                                                                                                                                                         Online Services), our cloud-based printer fleet remote

     Linerless means less paper used at point of production and less CO2 emission at
     point of disposal, since no liner waste is left behind for incineration.                                          Label
                                                                                                                       with
      Awarded the Carbon Footprint of Products (CFP) certification                                                     liner
      NONSEPA® is the first product in the Japanese label industry to earn CFP certification.
      CFP is a program to display the carbon footprint of products (measured by greenhouse
      emissions generated during their life cycle and expressed in mass-based CO2 equivalents)
      on their packaging so as to raise environmental awareness and further reduce emissions.

19                                                                                                                                                                                                                                                                                        20
Sustainability framework

                                                                                                                                                                                                                                                             The SATO Group

     Groundworks to value creation                                                                                                                                                                                                                           Declaration of Diversity
                                                                                                                                                                                                                                                             SATO Group is committed to providing a working environment where all
                                                                                                                                                                                                                              Relevant SDGs
                                                                                                                                                                                                                                                             employees regardless of race, ethnicity, gender, nationality, culture, religion,
                                                                                                                                                                                                                                                             educational background, disability or age are able to fully engage in open
     Our actions in-house in the areas of talent
                                                                                                                                                                                                                                                             dialogue and active participation while recognizing and respecting each other’s
     development, diversity/inclusion and health and                                                                                                                                                                                                         unique attributes.
     productivity management, as well as outside the                                                                                                                                                                                                              We believe this helps us create a diverse corporate culture that inspires the
                                                                                                                                                                                                                                                             generation of new ideas. In line with our corporate spirit of Ceaseless Creativity,
     company in supply chain management and                                                                                                                                                                                                                  we will continue to refine our diversity activities in daily work as the core of our
     stakeholder engagement form the foundation on                                                                             manage and optimize the supply chain. Regular,                                                                                business strategy.
                                                                                                                                                                                                                                                                  Our goal is to foster and promote diversity by giving every individual
     which we can continue to create value for our                                                                             ongoing dialogues with stakeholders and their
                                                                                                                                                                                                                                                             employee the opportunity to grow and excel professionally. This approach is key
     customers. We play our part in responsible                                                                                opinions allow us to keep improving our management                                                                            to delivering the best possible solutions to meet the diverse needs of our global
     procurement, working together with suppliers to                                                                           operations and enhance value of the company.                                                                                  customers. Diversity opens the door to productivity, competitiveness and
                                                                                                                                                                                                                                                             sustainable growth.

     Talent development, diversity and inclusion                                                                                                                                                                                                                Health and productivity management

     We foster talents who demonstrate our core strengths of                                                                   self-starters. The resulting corporate culture, which breeds                                                                     To ensure good health and well-being of SATO employees                              calls “The 3G actions for well-being”: 1) Greet with a smile,
     genbaryoku and corporate values. In 2019, we defined                                                                      innovative ideas much in line with the company motto                                                                             at their workplaces, SATO Group promotes health and                                 2) maintain Good condition (physically and mentally), and 3)
     competencies required for each manager level that was                                                                     “Ceaseless Creativity,” embodies the notion of diversity                                                                         productivity management, with a chief wellness officer put                          do a Great job (with high productivity).
     immediately incorporated into our new 360 degree                                                                          and inclusion. Being one of the pioneers in Japan to raise                                                                       in place. SATO encourages employees with metabolic
     appraisal process. Corporate values are another requisite                                                                 our mandatory retirement age, we were recognized at the                                                                          syndrome to exercise regularly, and conducts surveys to
                                                                                                                                                                                                                                                                                                                                                    Recognitions
     we try to instill around the world through workshops.                                                                     second Enjoy Aging Award in 2018 (organized by a local                                                                           measure employee satisfaction. Our efforts have won us
        We also build and maintain a working environment that                                                                  consortium for future society creation) for our efforts in                                                                       Health and Productivity Stock recognition in 2017 and White
     encourages individuals to respect one another and be                                                                      fighting age discrimination.                                                                                                     500 designation for three consecutive years from 2017 to
                                                                                                                                                                                                                                                                2019. SATO also started flexible working hours and
     HR roadmap                                                                                                                                                                                                                                                 telecommuting, along with a new key performance indicator
                                                                                                                                                                                                                                                                of per capita operating income that measures productivity.
                                                                                                                                                                                                                                                                                                                                                         Health and Productivity                 Diversity Management Selection 100
             Aim            To make SATO full of talents who practice genbaryoku and its underlying SATO Values to create and deliver customer value that add to the growth of our business.
                                                                                                                                                                                                                                                                This year, SATO announced new behavioral guidelines it                                   Management 500 (White 500)

                        Completed                                          FY 2019                                                         FY 2020                                                      FY 2021 or later
                                                   Instill SATO Values
                 Conduct SATO Values
                 workshops (Europe, North          Strengthen talent management and governance                                                                                                                                                                  Stakeholder engagement
                 and South Americas,
                 Asia, Oceania)
                                                   Install a global grading system
                                                                                                                                                                                                                                                                                                                                                    SATO added to the SNAM Sustainability Index
                                                                                                      Define competencies (for heads of subsidiaries outside Japan)
                 Formulate concept for talent                                                                                                                                        Conduct 360 degree feedback (for heads of subsidiaries outside Japan)
                                                                                                                                                                                                                                                                We maintain active dialogue with investors and other                                We have been named to the SNAM Sustainability Index set by
                 management based on               Establish compensation setting process (for heads of
                                                                                                                    Prepare to start a globally standardized compensation scheme (for heads of subsidiaries outside Japan)
                                                   subsidiaries outside Japan)
                                                                                                                                                                                                                                                                stakeholders, receiving valuable suggestions on how we
     Worldwide

                 global grading                                                                                                                                                                                                                                                                                                                     Sompo Japan Nipponkoa Asset Management Co., Ltd.
                                                                                                                                                                                     Prepare to start globally standardized manager trainings
                 Install a globally standardized
                 KPI management system (for                                                           Prepare to start talent management                                                                                                                        could improve our management. Each year, we hold two                                (SNAM). The index is used for SNAM Sustainable Investment
                                                                                                                                                                                                                                                                                                                                                    Fund, which is a socially responsible investment product for
                 heads of subsidiaries outside
                 Japan)
                                                                                                                    Prepare to start succession plan                                                                                                            financial results briefings for institutional investors and
                                                   Stipulate new expatriate rules                                                                                                                                                                                                                                                                   pension trusts and institutional investors that invest in a broad
                 Revise expatriate rules                                                                                                                                                                                                                        analysts, over 200 individual meetings with them, and                               range of companies (approx. 300) rated highly for their
                                                            Implement new expatriate process and management
                 and processes
                                                   Invest in koto-uri talents, starting with Asia
                                                                                                                                                                                     Draw up plan for a global mobility policy
                                                                                                                                                                                                                                                                briefing sessions and small meetings on a wide range of                             environment, social and governance (ESG) practices.
                 Pilot program to train                                                                                                                                              Train local employees for a global career
                 overseas employees at                                                                                                                                                                                                                          topics to facilitate direct conversations between
                 Japan headquarters
                                                   Implement English proficiency program for local employees
                                                                                                                                                                                     Draw up plan for global benefit management
                                                                                                                                                                                                                                                                                                                                                    Briefing sessions and small meetings
                                                                                                                                                                                                                                                                stakeholders and our CEO, investor relations officers,
                 Design new HR system
                                                   Install new HR system for managers
                                                                                         Implement training programs for grade-specific competencies and for managers under new HR system                                                                       business unit heads and external directors. These
                 for managers                      Install competency framework
                                                                                         Implement 360 degree feedback based on grade-specific competencies                                                                                                     opportunities help us optimize company valuation and lower
                 Establish competency
                 framework                                                                                                                                                           Prepare to start succession plan
                                                                                                                                                                                                                                                                capital cost.
                                                                                                                                                                                     Prepare to start globally standardized manager trainings
                 Devise strategy to motivate
                 mature employees                  Enhance talent and career development programs
     Japan

                 Define workstyle guidelines       Prepare to start talent management
                 by department
                                                   Apply Big Data analytics to talent management                                                                                                                                                                                                                                                    Earnings briefing                   Briefing for individual investors
                 Introduce talent
                                                   Verify effectiveness of workstyle innovation                     Run results-oriented work practices
                 management tool                                                                                                                          Prepare to start new workstyle for reorganized headquarter structure

                 Seek interested candidates for    Run diversity and inclusion initiatives (e.g., focal measures for long-serving and female employees; committee for increased job satisfaction)
                 overseas job
                                                   Develop koto-uri talents outside Japan, especially in Asia
                 Promote the use of English
                                                   Implement English proficiency programs based on department-specific goals

21                                                                                                                                                                                                                                                                                                                                                                                                                                    22
Sustainability framework

     Being environmentally responsible
                                                                                                                                      Relevant SDGs

     We recognize environmental protection as a priority
     common to humankind, as well as an essential
     factor to sustaining our business. Our environmental
     policy guides us towards reducing environmental
     impact, providing greener products and services,
     and running our business in harmony with
     the environment.

     Greenhouse gas emissions
                                                                                                                                                                                                                         Collecting and recycling printers
     Reducing CO2 emissions is essential to tackling global                       Referring to the medium-term target specified for                        our standard operation since 2007. In FY 2018, we
     warming and making our society sustainable. We understand                 Japan in the Paris Agreement*, we have set the following                    recycled 38 percent more printers than we did the previous
                                                                                                                                                                                                                                                               Customers
     that we are responsible for the environment, and work to                  goals in reducing environmental impact of our                               year. To further increase recycle rates, we have started
     monitor the carbon footprint of our business and promote                  business activities.                                                        taking actions since July 2019 to set up a customer                 Send
                                                                                                                                                                                                                                                                                                   Printer
                                                                                                                                                                                                                                                               Sales offices, support centers
     tangible initiatives to stop global warming.                                                                                                          support framework for printer collection and streamline                                                                                collection
                                                                               * I nternational agreement to combat climate change, adopted at COP21 on
                                                                                                                                                                                                                                   Printer
                                                                                 December 12, 2015.                                                        in-house processes via the CRM system.                                 collection
                                                                                                                                                                                                                                                                                                  Dismantle
                                                                                                                                                                                                                                                  East Japan Maintenance Center                     & sort
     Medium- to long-term targets and progress
                                                                                                                                                                                                                                                Metals, motors, rubber, plastic, PCB, etc.
                                                                                  FY 2018            FY 2019           FY 2020            FY 2030
        Action items      Target contributions          Key indicators
                                                                                   results            targets           targets            targets
                                                             CO2 emitted,                                                                                                                                                                      • Material recycling • Conversion to RPF*
                         Reduce Scope 1 & Scope 2
     Reduce                                        Japan     compared with      Down 8.0%          Cut by 10%        Cut by 15%         Cut by 26%
                         CO2 emissions                                                                                                                                                                                   *R
                                                                                                                                                                                                                           efuse Paper & Plastic Fuel (solid fuel produced from waste).
     environmental                                           FY 2013 (t-CO2)
     impact of our       Reduce Scope 1 & Scope 2            CO2 emitted,                                                                                  Recycling room                Parts sorted by material
     business activities CO2 emissions            Overseas   compared with       Up 15.6%          Cut by 6%         Cut by 10%         Cut by 26%
                         (Key production plants)             FY 2015 (t-CO2)

                                                                                                                                                           Harmony with nature

     In 2018, SATO joined Japan Climate Leaders’ Partnership                   should take actions to realize a sustainable, decarbonized                  One of our core businesses is consumables, which uses         forestation program in October 2016.
     (JCLP) as a supporting member to promote renewable                        society, with a sense of urgency.                                           wood pulp to produce its main product line of labels. This        We will continue to develop eco-friendly businesses and
     energy. JCLP is a group of Japanese companies sharing                         Through our participation in this partnership, we are now               is why we work to protect nature at a global scale in order   take part in forestation programs to enhance environmental
     the common understanding that the industrial sector                       looking at installing power generators for self consumption.                to conserve biodiversity and restore the environment.         awareness in our employees.
                                                                                                                                                               Since March 2014, SATO has been participating in the
                                                                                                                                                           Forest of Companies project that the Tokyo Development
     Efficient use of resources                                                                                                                            Foundation for Agriculture, Forestry and Fisheries promotes
                                                                                                                                                           as part of its Pollenless Forestation* campaign. We sponsor
     In order to realize a sustainable society, we must                            Whenever a customer switches to a new printer, we                       pockets of forest land in the Tokyo cities of Ome (since
     transform from a linear to a circular economy, in which                   collect the old printer at no cost to disassemble it and                    2014) and Akiruno (since 2019), naming these sites            * Campaign to replace cedar and
                                                                                                                                                                                                                         cypress plantations to a new variety
     resources are processed properly and circulated. As a                     recover the components or metals (iron, copper, brass,                      “Forests of Ceaseless Creativity” and managing them in        of these trees that release less pol-
     manufacturer, we make it our responsibility to put in                     stainless steel, aluminum, rubber, PCB, wires, waste                        our action to protect the forest ecosystem and its water      len (1/100 of the existing variety). It aims to reduce airborne pollen that causes
                                                                                                                                                                                                                         allergic reactions, while regenerating forests, stabilizing wood supply and revi-
     efforts for a circular economy.                                           plastics, etc.) for reuse through recyclers. This has become                sources. SATO was certified a contributor to the Tokyo        talizing the forestry industry.

23                                                                                                                                                                                                                                                                                                             24
Our business model
                                                                                                                                                                              DCS & Labeling +One is SATO’s business model of delivering unbeatable
                                                                                                                                                                              offerings we develop in-house or through external alliances together with
                                                                                   Core IT systems       (e.g., ERP, WMS, MES*)                                               third-party products in the form of solutions, to tag identifier information to things
                                                                                                                                                                              and people so that core IT systems can process the data. Technological

     Auto-ID solutions business                                                                                                                                               innovations and universal challenges faced by our customers are our driving force
                                                                                                                                                                              to building a lineup of solutions that can work for different industries. At the heart

     DCS & Labeling +One
                                                                                                                                                                              of this all is the genbaryoku of our employees who visit each customer site to
                                                                                                                                                                              understand the operation and its challenges before coming up with a solution.
                                                                                                                                                                              We will continue to solve challenges of the times with DCS & Labeling +One.

                                                                           Tag information               to things & people                                                   Customer-centric solutions
          The world around us                                                                                                                                                                                                          Our value creation
                                                                                                                                                                               Unbeatable offerings

                 Technological                                                                                                                                                                                                                     Ensure
                                                                                                                                                                                                                                                  accuracy
                  innovations

           IoT             AI              5G          Alliances
                                                                                                                                                                                                                                                     Save
                                                                       Combination of mutual strengths                  Generation of new businesses                                                                                                 labor

                 Sensors        Robotics

                                                                                                                                                                                                                                                    Save
                                                                                                                                                                                                                                                  resources
                                                    SATO’s products/
                                                       services
                                                                                                                                                              Technical
                                                                        Printers           Consumables       Software            Consultation
                   Universal                                                                                                                                   support
                  challenges                                                                                                                                                                                                                       Offer
                                                                                                                                                                                                                                                reassurance
                         Safety
      Productivity     and peace      Expenses
                                                                                                                                  25c
                                                                                                                    3cm
                        of mind

                                                      Third-party                                                                                                                                                                                Achieve
                       Compliance                      products                                                                                  00.0g
                                                                                                                                                                                                                                               sustainability
      Sustainability      with         Staffing
                       regulations                                       General purpose peripherals                       Specialized devices

                                                                                                             Integration                                                                                                                           Build

                                                                             Genbaryoku
                                                                                                                                                                                                                                                 emotional
                                                                                                             Field coverage                                                                                                                     connections
                                                                                                             Maintenance
            Markets, industries, applications

                             Retail               Manufacturing                    Food & beverage                Logistics                                          Public                                                       Health care

                                                                                                                                                         * ERP: Enterprise Resource Planning   WMS: Warehouse Management System    MES: Manufacturing Execution System
25                                                                                                                                                                                                                                                                       26
Our wide coverage of markets, industries and applications

                                                                                                                                                                                               Wide coverage across
     At SATO, we consider each market a global collective of different industries. For example,
     the food & beverage market can be broken down into production, foodservice and many other                                                                                               market segment, industry
     industries. Each market features a set of challenges which vary from industry to industry, and
     we work to address them with optimized solutions that we build based on the industry-specific                                                                                           and solution application
     knowledge and expertise we have accumulated over the years.

              Retail                                         Manufacturing                                         Food & beverage                                          Logistics                                                Public                                                     Health care

     Mass retailers Apparel stores                   Automotive     Building &    Iron & steel               Food        Fast food           Hotels                Warehousing      E-commerce                     Municipal          Leisure            Law                    Pharmaceuticals          Blood         Medical
                                                                     housing                              manufacturers restaurants                                                                                                                  enforcement                                         bags         equipment

      Mail order      Drugstores                             Chemical       Electrical                              Restaurants     Beverage                      Transportation          3PL                                  Education        Postal                                       Hospitals          Pharmacies
      merchants                                                            equipment                                              manufacturers
              12.6%                                                 35.2%                                                     10.0%                                              26.1%                                                3.9%                                                            12.2%

                                                                                                                                                                                                                                                      * Underlined figures denote respective share in SATO sales, Japan (FY 2018)

                   Examples of solutions for food    manufacturers                                                                                                                       HACCP compliance

                                                                                                                                                                 Food labeling        Manage health and
                                                                                                                                                                                                                Traceability
           Our solutions can be used to automate operations and improve                                                                                        Print food labels     hygiene conditions of                                   Traceability
                                                                                                                                                                                        food handlers        Weigh and batch
           data efficiency in all processes ranging from incoming inspection                                                                                                                                   ingredients                 Check mix of                   Automation
                                                                                                                                                                                                                                            ingredients
           to inventory management.                                                                                                                                                                                                                                  Pack shipments
                                                                                                                                                                                                                                                                   Apply shipping labels
                                                                                                                                                                                                                                                                                                 Traceability
                     Automation                                                                            Food labeling
                                                                                                                                                                                                                                                                                            Control inventory
                                                                                                 Print
                                                                                                    Print
                                                                                                       labels
                                                                                                          labels
                                                                                                              forfor
                                                                                                                  imports/exports
                                                                                                                     imports/exports
            Enable labeling flexibility to meet different needs                                                                             Traceability
            Improve accuracy and speed in packing and labeling goods for shipment                             Food labeling
                                                                                                                                       Receive ingredients                HACCP compliance
                                                                                                                                         Receive ingredients          Control temperature of
                    Food labeling                                                                                                              Traceability             fridges/freezers

            Support multiple languages in printing/applying labels for imports/exports
                                                                                                                                                                                                                                                            HACCP compliance

                                                                                                                                                                                                                                                   Check for food contamination
              HACCP compliance                              Traceability
                                                                                                               HACCP compliance
            Manage data on the cloud                Manage receiving, location transfer                   Inspect
                                                                                                             Inspect
                                                                                                                  incoming
                                                                                                                     incoming
                                                                                                                            goods
                                                                                                                              goods
            Support multiple languages              and inventory operations
                                                                                                                  HACCP compliance
            Perform checks on workflows in          Control production operations                                                                                                        HACCP compliance
            a timely manner                         including weighing and mixing                                                                                                                                                                                Automation
                                                                                                                                                                                   Log core temperature of
            Receive alert notifications             of ingredients                                                                                                                      cooked food                                                     Print food and date labels
            Connect with critical process           Manage shipping operations
            instruments                             Track and trace shipments                                                                                                                                             HACCP compliance

                                                                                                                                                                                                                Log hygiene status of premises
               See Page 39.

27                                                                                                                                                                                                                                                                                                                                  28
Our products and services                                      The ‘SATO Blue’           An indicator bar that illuminates blue or red to show
                                                                                              operational status; now sported on display panels of all
                                                                    indicator
                                                                                              SATO printer products as part of our image branding.                                                                                                                                       Heat-resistant
                                                                                                                                                           For every distinct need                                                                                                               labels

                                                                                                                                                           Consumables
     Created from the customer,                                                                                                                            We have produced consumables for as long as we have printers, caring

     for the customer                                                                                                                                      about each and every label we provide customers. Our know-how
                                                                                                                                                           helps us develop new base materials and apply more efficient finishing
                                                                                                                                                           techniques to come up with products that best meet needs. With
                                                                                                                                                           demand growing for RFID in recent years, we now perform inlay design,
                                                                                                                                                                                                                                                                                                           Video
                                                                                                                                                           tag/label conversion and quality inspection, all in our very own plant to
     We visit customer sites across different industries, and                                                                                              produce custom RFID consumables better tailored to customers’
     use what we discover, observe and learn there to invent                                                                                               operating environments.                                                             Custom RFID
                                                                                                                                                                                                                                               tags/labels
     new products and services. As a manufacturer, we pay
     attention to the details of our product designs and
     enforce strict quality control across our R&D, production                                                                                                                                                         Solve problems on site
     and inspection processes. As a solutions provider, we
     make sure our solutions are tested repeatedly on site                                                                                                                                                             Solution services
     before delivering them to our customers.
                                                                                                                                                                                                                       Our Visual Warehouse* solution navigates workers and forklift operators within a
                                                                                                                                                                                                                       logistics warehouse in the shortest possible route using indoor locating technology.
                                                                                                                                                                                                                       The @Form paperless solution controls quality, documentation and traceability in food
                                                                                                                                                                                                                       production with the growing mandate for HACCP compliance. These customer-centric
     Minimize downtime to speed business                                                                                                                   Location tracking solution for
                                                                                                                                                           greater warehousing efficiency
                                                                                                                                                                                                                       solutions we invent allow businesses to better deal with staffing shortages, productivity
                                                                                                                                                                                                                       limits, food safety concerns, and other challenges in our rapidly changing world.

     Printers                                                                                                                                                                                                          * V isual Warehouse is a trademark or a registered trademark of SATO Holdings Corporation
                                                                                                                                                                                                                          in Japan and other countries.

     With product technology accumulated over 30-plus years, SATO designs and develops
     printers to perform universally. They operate easily, print in multiple languages, connect to                                                         To support day-to-day operations                                                                                                                Video
     various interfaces, and minimize downtime for sites of operation when used together with our
     IoT-based service that monitors printers 24/7 via the cloud.
                                                                                                                                                           Software
                                                                                                                                                   CL4NX
                                                                                                                                                           We help customers efficiently print and manage the label/tag data
                                                                                                                                                           they generate in their daily operations by developing and offering
         Printer lineup for diverse business scenarios                                                                                                     software that can be used to create layouts and centrally maintain
                                                                                                                                                                                                                                        Label design software               Cloud-based data
                                                                                                                                                           print data across multiple locations.                                                                          management application
                                                                       NEW

                                                                                                                                                                                                                       Providing field knowledge and expertise
                             PW208NX                                CT4-LX                           LR4NX-FA                             FX3-LX

           Mobile printer optimized for      Compact printer due to be          Auto labeler engineered to fit      Touch screen printer with                                                                          Consultation
           delivery, warehousing and         released outside Japan             into existing production lines      Android OS that can run
           other operations that require     starting January 2020              in different setup orientations     a variety of apps to support
                                                                                                                                                                                                                       Our field knowledge and expertise on auto-ID technologies and business
           on-the-go printing                                                   for accurate label application      work environments
                                                                                                                                                                                                                       processes can prove to be valuable advice for customers. It can improve on-site
                                                                                                                                                                                                                       operations. It can boost sales of a product by renewing its package design based
                                 Compatible with SOS*, our cloud-based IoT service that ensures stable
                                                                                                                                                                                                                       on proper market research and strategies. These are more ways in which we
                                 operation of printers through preventative maintenance
                                                                                                                                                                      Service to design and print                      contribute towards a better and more sustainable world than by simply selling the
                                 * SATO Online Services
                                                                                                                                                                      packaging that helps sell                        products we produce.
                                                                                                                                                                      the product
29                                                                                                                                                                                                                                                                                                                  30
Actions for sustainable business growth

     Overseas

     “Selling the solution, not the product”
      (koto-uri) globally
     Outside Japan, we benefitted from the growth in our base
     business of printers and consumables to record highest-ever
     revenue and higher year-on-year sales and profits in FY 2018.
     We will focus on instilling the koto-uri approach thoroughly
     and invest strategically in priority countries and talent                                                                                                                                                      Hayato Shindo
     development to further step up growth of our global business.                                                                                                                                                  Executive Officer
                                                                                                                                                                                                                    President, SATO International Co., Ltd.

                                                                                                                               FY 2018 recap

                                                                                                                               In the past fiscal, we achieved new record-high in revenue      group companies. We also created various opportunities
                                                                                                                               and increased both sales and operating income from a            for employees worldwide to learn about SATO’s core
                                                                                                                               year ago as Asia kept up its strong performance and             competence in genbaryoku and develop their awareness
                                                                                                                               Europe won deals substantial in size. We did not, however,      of koto-uri.
                                                                                                                               meet the target figures we planned at the beginning of the         Having large, global corporations as customers would
                                                                                                                               term as our China-related businesses slowed down due to         increase our business presence around the world. We will
                                                                                                                               USA–China trade tensions and our consumables products           build on the talks developed in the past year to convert
                                                                                                                               suffered from the soaring cost of paper materials. The fact     them into actual sales in FY 2019 and propel ourselves
       Sales and operating income
                                                                                                                      86,000   that our overseas group companies are taking longer than        towards expanding sales and securing the trust of potential
       (Millions of JPY)                                                FY 2019–2021
                                                                                                        4-year CAGR
                                                                 Medium-term management plan                                   expected to fully take up the koto-uri model to capitalize on   alliance partners.
                                                                                   3-year CAGR
                                                                                                        12.3 %                 business opportunities around us also contributed towards          One of the markets we see growth potential in is food.
                                                                                    7.6 %                             10,000
                                                                                                                               this shortfall.                                                 Food safety lapses (e.g., lack of allergen indication on

       Build the foundation to                                                                    54,000                           That said, we have definitely made progress with our        labels) are driving demand for better food labeling as
                                                                                                                               koto-uri strategy in FY 2018 to initiate more business talks    standards become stricter worldwide. This creates
       “selling the solution” and                               10-year CAGR   43,316
                                                                                                                               with large corporations at a speed that would have been         favorable environment for us, particularly in Asia and
       drive growth                                                7.5 %                                                       unthinkable in the past. This was possible because of the       developing economies where improvements in quality of
                                                                                                  4,700
                                                                                                                               systems/infrastructures we put in place that generated          life are accompanied by higher expectations of safety.
                                                       20,978
                                                                                                                               new sales leads and fostered greater collaboration among
                                                                           2,239

                                                   (FY)   2008                 2018     2019   2020   2021             2025

                                                                                                       Planned
                           Sales    Operating income      -1,801

31                                                                                                                                                                                                                                                            32
Actions for sustainable business growth — Overseas

     Identify priority countries and invest strategically                                                                                   Target countries, areas, and industries of high potential,
     Seeing how the shift from selling the product to selling the
     solution has proved fruitful for our business in Japan, we
                                                                               In the case of India and Vietnam, the needs for our
                                                                           solutions center primarily on the manufacturing industry
                                                                                                                                            and execute strategies and investments with speed
     are planning to make the same transition outside Japan                where measures for improving product traceability and
     over the next three years. This will be by no means easy,             production control are gaining traction. India, in particular,
     but we cannot afford to stick to the status quo either, as it         has an abundance of IT engineers in the country that                                                                              Key strategies

     would only land us in price wars, make us vulnerable to               allows us to find the best partners to work with in
                                                                                                                                              1. Optimize workforce and operations in focal areas                           4. Strengthen global alliances
     changes in our business environment and limit our growth.             developing software that goes into our solutions. The
                                                                                                                                              2. Lay groundworks to supplying products, services                            5. Establish CRM (customer relationship management)
     Now that megatrends are creating positive tailwind for our            country is also home to many pharmaceutical companies                 and solutions                                                                 system and other sales infrastructure              Invest
     business, we must waste no time in driving our strategy for           that manufacture and export generic drugs, pointing to
                                                                                                                                              3. Develop sales collaterals and functions to support
     strengthening koto-uri to sell combinations of products               demand for quality product labeling. To capture all these             koto-uri
     and services to customers based on their specific needs.              opportunities and scale up our business, we will be looking
        For this strategy to succeed, it is important that we              to invest in building a new consumables production facility,
     target and invest our resources effectively in countries with         partnering with local companies, and acquiring the
     promising growth prospects. I see tremendous business                 necessary professional talents.                                                                                     Countries/regions we will focus on
     potential in the emerging nations in Asia with rapidly                    The US economy may not be growing as fast as India or
     growing economies. This is because as their GDP                       Vietnam, but it boasts a titanic market size that keeps the
     increases, their standards of living improve, leading to              country atop the world’s GDP rankings. As headquarters of
     greater needs for labor saving and food safety, which are             many global corporate giants are here, we will work to offer
     closely relevant to our auto-ID solutions business. We will           more compelling propositions to these decision makers by
     be focusing on India and Vietnam as our top priority                  expanding our local sales function and applying the strengths
     countries in Asia, given their strong affinity with the SATO          of our worldwide network that spans 27 countries/regions.
     group business. Outside Asia, we have set the US as top               We will also be looking out for M&As and new alliances while
     priority on account of its enormous market size.                      setting up more places from which to supply consumables.

                 Selling the product                          Selling the solution                      Next stage in solutions

                                                                                                                                                 Top priority*

                                                                       Japan      Next level                                                     India, Vietnam, US
                                                                                                                                                 High priority
                                                                     Move to selling solutions at the next level                                 China, Thailand, Indonesia, Russia, The Philippines

                                                                                                                                                 Other countries/regions with SATO offices
                                Overseas          Koto-uri in 3 years                                                                            Argentina, Brazil, Germany, France, Italy, The Netherlands, Poland, Spain, Sweden, Switzerland, UK, South Korea,
                                                                                                                                                 Malaysia, Singapore, Taiwan, Australia, New Zealand, Mexico

                              Complete the transition
                              Do in 3 years what took 20 years in Japan                                                                        * Determined based on macro data and considerations such as business affinity with SATO and supply chain maturity levels

33                                                                                                                                                                                                                                                                                34
You can also read